W-4 is a form used by employer to withhold the correct federal income tax from employee's pay.
Form W-4, officially Employee’s WIthholding Certificate, is a legal form that employees use to notify their employers of the amount of federal tax income to be withheld from their paycheck in every pay period. If you are an employee, filling out and submitting the form lets your employer know the correct amount of income tax to withhold.
By completing Form W-4, you determine the amount that your employer would withhold from your paycheck to send to the Internal Revenue Services (IRS), the federal tax agency in the United States. If you just joined a company or a significant change in your life happened that affected your finances, you may fill out the form to adjust the amount of withholding tax from your pay.
Every year, individuals who earned money need to file their tax returns. Form W-4 affects the amount of refund you will receive or the tax you will owe. An employee can avoid owing the federal tax agency unexpectedly large sum of money by properly balancing taxes. Underpaying taxes could also result in penalties and interest. On the other hand, withholding too much tax could result in a substantial tax refund, but might lead to budgeting-related issues. In addition, withholding too max works as if you are granting the government an interest-free loan.
You may get Form W-4 from the official IRS website or directly from your employer.
The previous versions of Form W-4 allow taxpayers to determine the amount of federal tax income that their employers should withhold from their paycheck every pay period. They contain a Personal Allowances Worksheet to help taxpayers figure out how many allowances to claim. The 2020 version of Form W-4 removed the option to claim personal allowances.
The IRS introduced a new W-4 withholding form that is more streamlined and easier to accomplish. It is the major revision of the form since the Tax Cuts and Jobs Act (TCAJ) was signed into law in 2017. In general, it should be completed if there are changes in your finances due to marriage, raising a family, or a new job. Moreover, it makes it easier to determine and control the amount of taxes a professional pays throughout the year.
It is prudent to revisit your Form W-4 at least annually. In addition, do revisit it more regularly or sooner if you get married, have a baby, move to a new job, or start earning extra income. However, unlike previous versions, the redesigned form eliminates the ability of taxpayers to claim personal allowances. Instead, it guides them through a step-by-step process that calculates the withholding amount based on various financial situations.
The previous versions include seven sections while the new Form W-4 only has five sections.
Follow the guide below to fill out Form W-4 accurately.
Step 1 requires your personal information. In this section, provide your full legal name and address, Social Security number (SSN), and filing status, whether you are Single or Married but filing separately, Married and filing jointly, or Head of Household. Your SSN is important as it will be used by your employer when sending the withheld money to the IRS so make sure it is correct.
Step 2 is when you have more than one job at the same time or are married filing jointly and you and your spouse both work, fill out this section. If the conditions apply to you, you have the following options:
a. Use the IRS’s online Tax Withholding Estimator.
b. Fill out the Multiple Jobs Worksheet on page 3 and enter the result in Step 4(c).
c. Check the box in option C if there are only two jobs total. This option is accurate for jobs with similar pay; otherwise, more tax may be withheld than necessary.
Step 3 is when you have dependents. This section will help you determine credits you may be eligible for.
Step 4 allows you to withhold additional money from each paycheck. This optional section has three options:
a. Use this section to determine the amount to be withheld from your non-job income. A non-job income may be interest, dividends, or retirement income.
b. Fill out this section if you expect to claim deductions other than the standard deduction and want to reduce your withholding.
c. Use this section to allow any additional tax you want to be withheld each pay period.
Step 5 requires the date you completed the form and your signature to validate the document. For the Employers Only section, provide the employer’s name and address, the first date of employment, and Employer Identification Number (EIN).
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